MARKET WATCH: Economic indicators undercut front month oil price

Sam Fletcher
OGJ Senior Writer

HOUSTON, Feb. 5 -- The price of the front-month futures crude contract slipped slightly Feb. 4 following a bearish report by the US Department of Energy of a large jump in US oil inventories.

However, Olivier Jakob at Petromatrix, Zug, Switzerland, said the price dip was triggered more by a drop in the Dow Jones Industrial Average than by the build in crude inventories.

DOE's Energy Information Administration said commercial US crude inventories escalated by 7.2 million bbl to 346.1 million bbl in the week ended Jan. 30. It marked the sixth consecutive increase, pushing crude stocks to the highest level since July 2007. Gasoline inventories increased by 300,000 bbl to 220.2 million bbl in the same period, while distillate fuel inventories fell 1.4 million bbl to 142.6 million bbl (OGJ Online, Feb. 4, 2009).

Nevertheless, front-month crude prices "held up quite well" and were even up slightly in early trading Feb. 5, said analysts at Pritchard Capital Partners LLC, New Orleans. The Organization of Petroleum Exporting Countries "continues to jawbone the market by suggesting it would be willing to cut again at its March meeting if prices do not head back closer towards $50/bbl." They said, "Some talk of another 500,000 b/d cut, with the bulk of the burden falling on Saudi Arabia."

In the Houston office of Raymond James & Associates Inc., analysts said, "We continue to like the long-term fundamentals for crude, but things could go either way until we get some sort of stabilization in the global economy. The good news is that Saudi Arabia is leading the way for OPEC and actually producing below its stated quota. As for gas, we have had the same opinion for nearly a year now. It is ugly and should get even worse by this summer (despite the recent string of cold weather)."

Meanwhile, the ADP national employment index reported nonfarm private employment fell more than expected in January, down 522,000 jobs on a seasonally adjusted basis. It also revised December job losses upward, putting the loss for that month at 659,000.

In a Feb. 5 report, the Department of Labor said the number of laid-off workers seeking jobless benefits increased by 626,000 last week to 4.8 million—the most since records began in 1967. That increase was the largest since October 1982 when the economy was in a steep recession. That count doesn't include an additional 1.7 million people receiving unemployment insurance through an extension of benefits approved last year by Congress.

On Feb. 3, the American Petroleum Institute reported an 8.1 million bbl jump in US crude inventories to 346.2 million bbl; an increase of 2.2 million bbl 217.6 million bbl in gasoline stocks; and a drop of 184,000 bbl in distillates to 140.9 million bbl in the week ended Jan. 30. That prompted a charge by Jakob at Petromatrix that the API numbers "do not add up." Jakob said, "The stock build in crude oil is very substantial, but at the same time the API is reporting a very significant drop in imports (down 1.3 million b/d to 8.8 million b/d) and an increase in refinery runs (up 438,000 b/d to 14.47 million b/d). The numbers should add to a draw of crude oil, not a build."

However, Jakob reported Feb. 5, "The DOE confirmed the large crude builds indicated by the API report, and at first glance a crude oil import increase of 329,000 b/d seemed to be more consistent with a stock build. A second look at the data was, however, less convincing as most of the increase in crude imports was in Petroleum Administration for Defense District (PADD) 5 [on the West Coast, up 534,000 b/d] While PADD 3 [the Gulf Coast] had most of the crude oil stock build, but imports into it were unchanged."

Energy prices
The March contract for benchmark US sweet, light crudes dropped 46¢ to $40.32/bbl Feb. 4 on the New York Mercantile Exchange. However, the April contract continued to climb, up 20¢ to $43.75/bbl. All subsequent monthly contracts also increased and remained in contango through at least 2010.

On the US spot market, West Texas Intermediate at Cushing, Okla., was down 46¢ to $40.32/bbl. Heating oil for February delivery inched up 0.16¢ but its closing price remained virtually unchanged at $1.33/bbl on NYMEX. The March contract for reformulated blend stock for oxygenate blending (RBOB) increased 5.14¢ to $1.22/gal.

Natural gas for the same month gained 8.4¢ to $4.60/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 3¢ to $5.01/MMbtu. EIA reported a large withdrawal of 195 bcf of natural gas form US underground storage in the week ended Jan. 30. That left less than 2.2 tcf of working gas in storage, up 60 bcf from year-ago levels and 17 bcf above the 5-year average.

In London, the March IPE contract for North Sea Brent crude was up 7¢ to $44.15/bbl. Gas oil for February lost 25¢ to $422.50/tonne.

The average price for OPEC's basket of 12 reference crudes gained 12¢ to $1.64/bbl on Feb. 4.

Contact Sam Fletcher at [email protected].